Oppenheimer tells Apache to sell its Egypt assets

By Claudia Assis

FactSet

Apache and XLE, side by side

Apache Corp.
/quotes/zigman/218137/quotes/nls/apaAPA would do well to sell its assets in Egypt, which have dragged the company’s valuation by 20% to 30%, analysts at Oppenheimer said in a note to clients.

And it’s likely to get worse, given Egypt’s “dysfunctional government, deteriorating economy, polarized society and exploding population,” the analysts said.

Apache is one of Egypt’s largest acreage holders, controlling 9.7 million gross acres in the country’s Western Desert. Only 18% of the acreage has been developed, “providing us with considerable exploration and development opportunities,” the company said in its website.

“We think investors should stay out and that [Apache] would be better off selling its Egyptian assets and using the proceeds to buy back 15% of its shares and reduce debt,” Oppenheimer said.

Apache reported first-quarter earnings of $2.02 a share, below Wall Street expectations of $2.20 a share. Earnings were also down 33% from a year and 11% on the quarter on higher costs and production declines.

Apache has planned to sell $4 billion in assets this year, double its previous target. That follows acquisitions worth $16 billion in the last three years, the Oppenheimer analysts said. The company plans to use the asset-sale proceeds to reduce debt by $2 billion and embark on a $2 billion share buyback program.

Shares of Apache have advanced 6.2% so far this year, compared with a 13% advance for energy equities on the S&P 500 Index. Shares have gained 0.9% in the past 12 months, versus gains of 23% for their energy peers.

In addition to the United States and Egypt, Apache has operations in Argentina, Australia, Canada, and in Britain’s North Sea sector.

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